2024 Blue Lake Capital Annual General Meeting Successfully Concluded

The 2024 Blue Lake Capital Annual General Meeting (AGM) was successfully held in Shenzhen on 18 September 2024.

The AGM featured global institutional investors and representatives from Blue Lake’s outstanding portfolio companies, who engaged in in-depth discussions on industry changes and developments in advanced manufacturing, corporate digitization, and cross-border e-commerce within today’s complex and dynamic economic environment. The focus was on fostering deep integration between industry and capital to promote collaborative development and value creation.

Haitao Wei, Partner of Blue Lake Capital, delivered a presentation titled “Electric Vehicle: An Emerging New Eco System”.

Thanks to cleaner technologies and lower costs, the transition of China’s automotive industry to electric vehicles seems unstoppable. The penetration rate of electric cars in total sales continues to rise, reaching 36% in 2023 and surpassing 40% in the first half of 2024.

This transformation mirrors the disruption of traditional mobile phones by smartphones years ago. The transition incorporates various new technologies, including innovative software layers, chips, sensors, and chassis technologies, creating numerous new opportunities within the automotive supply chain ecosystem.

Since 2016, Blue Lake Capital has been making significant investments focused on the trends of electrification and smart technology in the automotive industry.

In the autonomous driving algorithms sector, Blue Lake Capital led the angel round investment in Momenta, a global unicorn specializing in L3/L4 autonomous driving solutions, and in Zelos, a producer and operator of L4 commercial unmanned urban delivery vehicles. In the chassis components sector, the Fund has invested in several key players, including TEEMO, a leading provider of autonomous driving skateboard chassis; Linden, a manufacturer of CDC shock absorbers; Trugo Tech, a manufacturer of brake-by-wire systems; and Watson Rally, a pioneer in electromechanical braking (EMB) system. In the sensor and detection systems sector, the Fund has invested in several key manufacturers, including Sensing, a producer of L4 high-definition cameras; Trensor, a manufacturer of pressure sensors; and Itimotor, a supplier of automotive powertrain testing systems.

For original equipment manufacturers (OEM) and the supply chain, the transition from fuel vehicles to electric vehicles presents a significant opportunity. Over the past five years, Blue Lake Capital has built a robust portfolio in this sector, with most of its portfolio companies receiving decisive investment from the Fund during Series A round or even at the incubation stage. The Fund’s electric vehicle investment portfolio has capitalized on the tailwinds of rapid growth amid disruptive changes in industry.

While maintaining an optimistic outlook on the industry, Blue Lake’s team has also noted the potential for overcapacity. Moving forward, Blue Lake will adopt a more cautious approach in selecting niche segments and will place greater emphasis on exit opportunities and real DPI during post-investment management.

Dr. Ye Guohong, Founder and CEO of Linden Chassistech, represented the Fund’s outstanding portfolio companies and shared insights into Linden’s entrepreneurial journey and the trends in the electric vehicle components industry.

Established in July 2023, Linden Chassistech specializes in the design, R&D, and manufacturing of automotive shock absorbers in China, along with finished vehicle matching and tuning.

Dr. Ye believes that the rapid increase in electric vehicle penetration in China has created new demand in the smart chassis market. The introduction of advanced autonomous driving technologies (Level 3 and above) requires chassis systems with enhanced controls. The total passenger car market in China is expected to grow to 30 million vehicles by 2030, with the electric vehicle market accounting for 22 million units. The substantial market opportunity has attracted many emerging OEMs, leading to predictions that the peak market size for CDC shock absorbers—key components in electric vehicles and autonomous driving—could reach RMB 18 billion, with a global market size of USD 6 billion.

In response to this historic entrepreneurial opportunity, Dr. Ye and his team made the decisive choice to start their venture, delivering impressive results in a short period. Since September 2023, they have established deep collaborations with several OEMs. In October 2024, an automatic assembly line with an annual production capacity of 1 million electromagnetic valves and a semi-automatic assembly line with an annual production capacity of 1 million shock absorbers will soon be put into operation.

Ray Hu, Founder & Managing Partner of Blue Lake Capital, presented on “SaaS: The Forever Software”, sharing Blue Lake’s perspective on the SaaS industry within the economic cycle and providing updates on the business progress of its SaaS portfolio.

Although the BVP Emerging Cloud Index (EMCLOUD) declined by 8.4% from July 2023 to July 2024 (while the Nasdaq Index rose by 17.5%), operationally, the ARR growth median of US listed SaaS companies during the same period was 17%, with a median NDR of 110%. This demonstrates the strong resilience of SaaS businesses throughout the economic cycle. We firmly believe in the powerful advantages of the SaaS business model and its immense potential in the Chinese market.

In view of the valuation adjustments in the secondary market, Blue Lake Capital leverages its team’s long-term industry resources and deep business insights to focus on post-investment empowerment. This involves assisting portfolio companies in identifying clear path to cashflow breakeven, thereby accelerating their business growth, consolidating market leadership, and patiently awaiting optimal exit opportunities.

Nearly 70% of the companies in Blue Lake’s SaaS portfolio are expected to achieve positive quarterly cashflow by the first half of 2025, with Jushuitan projected to attain profitability in 2024 and already in the process of an IPO in Hong Kong.

SaaS companies can achieve long-term stable growth while maintaining gross margins exceeding 70%. The market headwinds of the past two years have created undervalued investment opportunities. The Blue Lake team will patiently await the right moment while strengthening post-investment management to empower portfolio companies’ product capabilities, ensuring they remain competitive in the market. Blue Lake believes that by bracing themselves for upcoming challenges, they will not only achieve a smooth landing but also soar to another new height.

Haohui Chen, Partner of Blue Lake Capital, presented on “Cross Border E-Commerce: New Face of China’s Trade”, discussing Blue Lake’s investment strategies in the cross-border e-commerce sector and the key success factors of its outstanding portfolio companies.

In the wake of the pandemic and changing consumer habits, e-commerce has been thriving in China, and the penetration rate in major global economies is steadily increasing. For example, in the U.S., the e-commerce penetration rate rose from 11% to 16% over three years. Cross-border e-commerce has become a new engine for China’s foreign trade growth, with sales reaching RMB 1.8 trillion in 2023 and expected to hit RMB 2 trillion in 2024, representing a compound annual growth rate of 20%.

Since 2018, Blue Lake Capital has focused on the cross-border e-commerce sector, gradually developing a deep understanding of the market through two early investments. This has allowed them to identify high-potential niche categories and uncover investment-worthy targets within the space.

Chen believes that these targets typically possess three key characteristics: a thorough understanding of the rules and dynamics of various e-commerce platforms; a first-mover advantage in high-potential categories; and a position among the leading players in those categories.

The four companies in Blue Lake’s cross-border e-commerce portfolio—tools and equipment brand Vevor, sportswear brand Baleaf, smart lighting brand Govee, and 3D printing filament brand Polymaker—are all top sellers on Amazon. Blue Lake identified and invested in these companies during their early development, and since then, they have maintained rapid business growth, demonstrating both strong growth potential and profitability.

Chen stated that since export through direct to consumer cross-border e-commerce has demonstrated strong historical growth and future potential, and given that Blue Lake has already invested in outperformed companies, Blue Lake’s USD-denominated Funds (USD Funds) will continue to closely monitor this space. Additionally, the Blue Lake team will maintain its rigorous selection criteria, investing only in the most exceptional targets.

Wallace Tang, Chief Financial Officer of Blue Lake Capital, reviewed the latest performance of the Blue Lake USD Funds. Overall, the portfolios of Blue Lake’s USD Funds have been able to navigate through cycles, delivering strong and sustained returns.

In Blue Lake’s USD Fund I, II, and III, several portfolio companies have experienced years of rapid growth, establishing themselves as market leaders in their respective niches. These include Momenta, Jushuitan, Vevor, Zelos, Zaihui, Cloud Helios, and Zhenyun Technology. Notably, both Momenta and Jushuitan are currently in the process of IPOs in the U.S. and Hong Kong , respectively.

During its investment phase, Blue Lake’s USD Fund IV progresses steadily and maintains a balanced approach. The fund has already positioned several quality targets within the electric vehicle supply chain. Notably, TEEMO and Trugo Tech have emerged strongly after Blue Lake’s investment, achieving doubling growth in their businesses and securing follow-on financing in a short period.

China’s capital market is currently on the brink of recovery, with more value investment opportunities expected in 2025 and 2026. Blue Lake will align with this cycle, carefully managing the pace of investments and setting higher standards when choosing quality investing targets.

In its investment strategy, Blue Lake will continue to focus on advanced manufacturing and enterprise digitization, particularly within the electric vehicle supply chain, where significant changes in industry have attracted numerous outstanding startups. Blue Lake will pay more attention and allocate more resources in post-investment management, empowering portfolio companies to enhance their operations and business growth, assisting them to achieve a dominant position in competition.